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White-Collar Crime | MONDAY, SEPTEMBER 28, 2015 | S7

the tip, while also placing a burden on the Other district courts have followed Asadi.14

whistleblower to establish, in a timely fashion, However, on Sept. 10, 2015, the Second
that they were the source of the information Circuit disagreed with Asadi in its decision
to avoid bogus award claims to the SEC later in Berman v. Neo@Ogilvy, No. 14-4626, 2015
on. Thus, as originally envisioned the rules WL 5254916 (2d. Cir. 2015), and created a split
in fact incentivize employees to allow the between the two circuits.15 In deciding Ber-
company’s compliance and legal departments man, the Second Circuit explained that “the
to fulill their roles and initially address any issue is whether an employee who suffers
allegations of unlawful conduct without SEC retaliation because he reports wrongdoing
involvement.
internally, but not to the SEC, can obtain

This type of incentivizing makes sense. the retaliation remedies provided by Dodd-
After all, the SEC itself beneits from support- Frank.”16 The court noted that “[t]he SEC
ing internal compliance programs because believes he can,” and it also pointed out
those programs, when properly implement- that some whistleblowers “will surely feel
ed, further its core goals. If matters can be that reporting only to their employer offers
investigated and, where appropriate, elevated the prospect of having the wrongdoing end-
internally by a company, it spares the SEC ed, with little chance of retaliation, whereas
time and resources.
reporting to a government agency creates a

And the companies beneit also. If the com-
pliance and legal departments are able to
investigate allegations of unlawful conduct,
come to conclusions and then, if necessary, In the last few years, a se-
present their indings to the SEC, they can
avoid the added costs and reputational risks ries of court decisions have
that an SEC-driven investigation would gen-
erate. Put another way, if the SEC initiates undermined the balanced
the investigation, there likely will be broad scheme established by the

requests for documents and, perhaps, testi- SEC and made it far riskier for
mony from employees and others. This will
typically necessitate the retention of outside an employee to irst report al-
counsel and will certainly involve increased leged unlawful conduct to their
time commitments and costs. And, of course,
there is the risk for companies that the press employer rather than the SEC.
becomes aware of an SEC inquiry and the
reputational risks that presents. In short, both
the SEC and companies beneit from a scheme substantial risk of retaliation.”The Second
17
where companies with robust compliance and Circuit concluded that whistleblowers are
legal functions can handle reports of alleged “entitled to pursue Dodd-Frank remedies for
unlawful conduct internally (at least as an alleged retaliation” where they are reported
initial matter).
to their employer, and not the SEC.18
Courts Have Altered the Whistleblower For its part, the SEC has disagreed with
Incentive Structure. In the last few years, the holding in Asadi and made a concerted
however, a series of court decisions have effort to preserve a whistleblower’s pro-
undermined the balanced scheme estab- tection from retaliation in other cases. For

lished by the SEC and made it far riskier for example, in Berman, the SEC iled an amicus
an employee to irst report alleged unlawful curiae brief pointing out again that the SEC
conduct to their employer rather than the had tailored the whistleblower rules “to
SEC. In addition to creating an award-based encourage individuals to report internally in
scheme for whistleblowers, Dodd-Frank also appropriate situations.”19 And, in August, the
provided substantial anti-retaliation protec- SEC issued an interpretative rule supporting
tions that were enforceable by both the SEC whistleblower status for employees who irst
and individually by the whistleblower. The report their claims internally to their own
SEC has vigorously enforced those provisions company. Again, the SEC noted that following

with the stated purpose of making it clear to the reasoning in Asadi would “jeopardize the
potential whistleblowers that protecting them investor-protection and law-enforcement ben-
from retaliation is “critical to the success” of eits that can result from internal reporting.”20
the program and a “high priority.”10
This message is coming from all corners
In 2013, the Fifth Circuit in Asadi v. G.E. of the SEC, including from the head of the
Energy (U.S.A.), 720 F.3d 620 (5th Cir. 2013) whistleblower program, who recently wrote
ruled that “the Dodd-Frank whistleblower- that “the [Dodd-Frank] employment protec-
protection provision creates a private tions should be understood to protect indi-
cause of action only for individuals who viduals at publicly-traded companies from

provide information relating to a violation employment retaliation who internally report
of the securities laws to the SEC,” and not potential securities law violations.” He then
to their companies.11 In Asadi, the plaintiff went on to point out that the SEC’s whistle-
reported alleged unlawful conduct internally blower program “was not meant to replace
to both his supervisor and the company’s or undercut corporate compliance programs”
ombudsperson for the region in which he and that the SEC was advancing this position
was located, but he did not provide it to the in courts around the country.21
SEC.12 The court of appeals found that this Nonetheless, despite the SEC’s efforts, the

was insuficient to trigger the Dodd-Frank law remains uncertain and the prospect of
anti-retaliation provisions because under a resolution preserving the SEC’s position
the statute’s “plain language and structure, is not on the immediate horizon. There now
there is only one category of whistleblowers: exists a circuit split and the continued risk to
individuals who provide information relating a potential whistleblower that, depending on
to a securities law violation to the SEC.”13
the jurisdiction, they may not be » Page S11